Question

At the beginning of the year an investor purchased 100 shares of common stock from ABC Corporation at $10 per share. During the year, the firm paid dividends of $1 per share. At the end of the year, the investor sold the 100 shares at $11 per share. What is the period return

Answer 1

Answer:

The periodic return or total return is 20%.

Explanation:

A stock can provide return in two forms: Dividends and Capital Gains. So, a formula that is used to calculate stock return must incorporate these two factors. Following formula is used;

  Total Return = {(Selling Price - Purchase Price) + Dividends} / Purchase Price

This implies that Total Return =  {(1,100 - 1,000) + 100} / 1,000 = .2 * 100 = 20%.

Thank you.